patrick.net

For there to be deflation, you would need a negative return on Treasuries. Oh, I see....

Deflation is by definition, a decrease in the money supply. Since the Federal Reserve refuses to disclose M3 anymore, it's hard to say how much deflation or inflation has occurred over the past 6 years.

Deflation would contribute to falling consumer and commodity prices, which we certainly have not seen, but other factors could cause them to rise anyway such as lower production and bandwagon jumping.

I suspect that the Fed is still inflating, taxing savers to bail out the big banks.

The Fed doesn't control inflation, the supply and demand of new debt does. That depends on the size of the population, their income, and their willingness to go into debt. The amount of money the Fed has created sitting on bank accounts is not relevant until it goes through the process of fractional reserve banking which is controlled by the consumer. Who cares if the Fed prints money? It depends on if we take out loans that count!

EconPete says

The Fed doesn't control inflation, the supply and demand of new debt does. That depends on the size of the population, their income, and their willingness to go into debt.

http://www.youtube.com/embed/NpodeegBvuM

We could all be billionaires literally if we had the same privileges as the Federal Reserve.

So the argument is if all countries build bunch of nuclear war heads and keep them in the bunkers, all that does is only creating the potential of nuclear war but the nuclear war does not exist. Also, if someone bring a gun into a bank but do not use it to rob the bank, he/she should not be stopped because only the risk exists but not the real robbery? Just try to understand how the logic go.

EconPete says

I'm sorry to inform everyone that hyperinflation is not coming.

Hyperinflation does not equal inflation on steroids.

I think the rest of what you talk about is all MMT related stuff, which has been adequately critiqued here .

Relevant excerpts pasted below:

If you have a large 401K, IRA or pension fund full of credits for dollars, you may be taking comfort in the fact that the 63% haircut in the very unit your retirement nest egg references has not yet shown up at the stores where you shop. But the fact remains that the dollar has been debased. That's why they call it debasement. The base is diluted by expanding its volume which reduces the value of the unit used for reference relative to the volume of available units.

Bonds are credit (the economy’s money) denominated in (referencing) the base unit (the dollar). Swapping credit for base units dilutes and debases every single credit dollar in the world, all quadrillion of them if you included derivatives.

When the private sector (plus our foreign free stuff suppliers) buy bonds, the USG is essentially spending credit money rather than expanding the base because "the credit to the reserve account of their banks" that Randall Wray mentioned above is deleted when the private/foreign sector buys a Treasury bond. Spending credit money does not dilute the base and debase the reference unit. But when the people (or banks) that bought those bonds swap them with the Fed for cash, the base is diluted and the reference unit is debased. So Cullen is wrong. A dollar bill and a dollar bond are not essentially the same thing.

Deflation is by definition, a decrease in the money supply.
Whose definition? From what I can tell, this may depend on whether you are a Keynesian or Austrian.
Natural gas and housing are cheaper today than a couple of years ago. Let's not forget velocity of money as well. Securitization helped those dollars zip around the globe until debt repudiation became popular.

EconPete says

The Fed doesn't control inflation, the supply and demand of new debt does.

FED controls EVERYTHING.

http://www.youtube.com/embed/OjsN_t8M1N8

Quiz: What is hidden word in ROMNEY last name?

EconPete says

Who cares if the Fed prints money? It depends on if we take out loans that count!

The FED creates inflation in other countries, instead, because the banks lend the FED's money to foreign banks in India and China and other countries throughout the world and those banks are more willing to lend this money to their citizens than we are. Eventually, this money will make it back to US, and create a HUGE inflation here. The FED will not be able to soap up all this money, because, to do that, they would have to offer something of value to buy back the money. Since, the FED had bloated up their balance sheet with worthless MBS's and long-term treasury bills, which won't expire for years, they will not be able to prevent inflation.

I can't see believing in their bullshit. Someone that trys to swindel me into believing 100,000 pieces of paper is worth an entire house. You think its more complicated than that. They want and make it that way. The greatest swindel is the labor they take with "paper" in my opinion. Providing you with a "house" more labor (the people that build it) swindeled with paper. So you can go to work for them. More labor swindeld with paper. On and on it goes. They need to just make the "deal" up front with no paper involved. You want me to work for you for what 30 years? If you give me a house? Screw that. I'll build it myself or figure something else out.

Your not taking 30 years of my fucking life for a house that only took 3 months to build. One of the biggest "swindels" and sucker deals on the planet is the one I just described. When you finally figure out the mass production aspect of throwing up a lot of houses quickly. You understand whats "really going on" is they are housing their labor very cheaply. 30 years labor for something thrown up really quick. Then go down to the "food store" and don't try to tell me they all aren't alike and have the very same if not identical "food" in every single grocery store. Now your getting an "idea" of who runs things. You now are getting to see. That they have to "keep" their labor going. Or go out and find a "gas station" that isn't a BP or Shell or Exxon. You all should know cause your the suckers that built all of it for them. All done for some pieces of paper. The really sad part is what you got back for it in "hard goods" took up most of your life and wasn't near what you had to give back for it.

Those clever enough to swindel you with paper of course "deserve it". When I get something from someone. I look at what they put into it. Whats it worth? If they put nothing into it. Fuck that I'm going to try to make them give it to me. Because if it was that easy for them. I'm sure not going to make it hard on myself.

"STEALING FROM ME IS THE "ROOT" OF ALL EVIL."

Baby boomers get 1-% interest from their saving accounts.
They have to sell their house and stock to survive.

Stay away from stock and house market.

EconPete says

Who cares if the Fed prints money? It depends on if we take out loans that count!

Which is why thegovernment is doing everything they can to save the housing market, and will continue to do so.

REpro says

Quiz: What is hidden word in ROMNEY last name?

enorm, onery, meno, mony, more, morn, nome, norm, omen, omer, oyer, yore, eon, ern, men, mon, mor, nom, nor, one, ore, rem, roe, rom, rye, yen, yom, yon, em, en, er, me, mo, my, ne, no, oe, om, on, or, oy, re, ye, yo

mormon

I have to agree with the deflation argument. I just bought a washer/dryer. the regular price was $799 but they ware on sale for $739. Not being able to take delivery I asked about how long the sale was going on and the salesman looked on the computer and told me this was the last day......but.......the new regular price is $699! My thinking is that manufactures have to price their shite so low that people can not resist buying them. I have also seen this reflected in CL furniture where frequently an ad states we paid $XXXX one year ago......but when I check the sale price it is frequently close to the 50-60% discounted CL price.

Not very scientific but just my observation. OTOH.....used Moto Guzzi's seem to be increasing in price???????

The Fed isn't going to allow an extended period of deflation. Deflation is too damaging for the economy. I don't think there will be hyperinflation either. As much as I mistrust the Fed, they generally don't do anything that's outright crazy.

Patrick,
The Fed HAS created inflation via the banks. This was done by the banks using their enormous pool of dollars issued to them at nearly zero interest rate to corner the market in almost every major commodity. Find a chart of commodity prices when the FED instituted QE!&II. Most agricultual commodities increased by 70% or more in this period. Do a little digging and you'll find Goldman et al became commodity brokers to such an extant that they pretty much cornered the market in everything they could possibly buy. Supply and demand. Foreign countries who supply these commodities are now upset over the fact that the US can just issue dollars out of thin air to corner the market in everything raising consumer prices for their own citizens

Whether there will be hyperinflation, or deflation in ipads and other consumer goods, I can tell you right now as a mom my grocery bill is badly suffering from inflation.

If you think we have deflation, you obviously haven't bought food or gasoline recently.

illustrateth says

Whether there will be hyperinflation, or deflation in ipads and other consumer good, I can tell you right now as a mom my grocery bill is badly suffering from inflation.

We have deflation in things we own (stocks & real estate) and inflation in things we need (food & gas).

dunnross says

We have deflation in things we own (stocks & real estate) and inflation in things we need (food & guess).

Well said.

Guess which phase of the K-winter we are in now:

dunnross says

We have deflation in things we own (stocks & real estate) and inflation in things we need (food & guess).

Yes, I agree with that. The giant housing bubble was actually a localized hyper-inflation in the credit sector, though most people didn't complain because it caused inflation in something they owned (a house).

Now that that mortgage credit is being defaulted on, the Fed is desperately trying to save the banks at the expense of everyone else, by creating unlimited credit to buy up the crappy mortgages from the banks, to slow down the deflation in housing. And that credit causes inflation in commodities.

From Jekyll Island to now, the purpose of the Fed has always been primarily to protect wealthy bankers. They didn't conspire in 1913 to be really nice guys. They conspired to prevent normal market forces from ever harming their own elite position.

Now that that mortgage credit is being defaulted on, the Fed is desperately trying to save the banks at the expense of everyone else, by creating unlimited credit to buy up the crappy mortgages from the banks, to slow down the deflation in housing. And that credit causes inflation in commodities.
From Jekyll Island to now, the purpose of the Fed has always been primarily to protect wealthy bankers. They didn't conspire in 1913 to be really nice guys. They conspired to prevent normal market forces from ever harming their own elite position.

The best description of the Fed I've seen anywhere.

dunnross says

Guess which phase of the K-winter we are in now:

Did you make up your own wave there? The real K-wave is like a sine wave, not whatever you want it to be. The current K-wave cycle has the economy going down right now, you could have just used that one.

EconPete says

The Fed doesn't control inflation, the supply and demand of new debt does. That depends on the size of the population, their income, and their willingness to go into debt. The amount of money the Fed has created sitting on bank accounts is not relevant until it goes through the process of fractional reserve banking which is controlled by the consumer. Who cares if the Fed prints money? It depends on if we take out loans that count!

"WE" are not the only people who can take out loans. Remember, corporations are people too, and banks are borrowing money to buy government debt, which the government is using to pump into various programs.
The brakes are on inflation because incomes are low and individuals aren't borrowing as much, but inflation is happening now. Last time I checked prices were up at the pump and in stores.

Shawn says

Remember, corporations are people too

Gawd I love this country!

The giant housing bubble was actually a localized hyper-inflation in the credit sector, though most people didn't complain because it caused inflation in something they owned (a house).

Yep, and the fools didn't realize that although the housing bubble temporarily increased their paper wealth and access to taking on debt, it costs them their jobs, their salary's purchasing power, and higher taxes. In other words, all house owners who didn't sell their house without buying other one, financially lost during and after the bubble.

dunnross says

We have deflation in things we own (stocks & real estate) and inflation in things we need (food & guess).

Yes, I agree with that. The giant housing bubble was actually a localized hyper-inflation in the credit sector, though most people didn't complain because it caused inflation in something they owned (a house).

Yes. We already had a hyperinflation in the 2000-2006 housing. It is amazing that I have never heard even heard Peter Schiff and other housing bears describe this as such.

StoutFiles says

Did you make up your own wave there? The real K-wave is like a sine wave, not whatever you want it to be. The current K-wave cycle has the economy going down right now, you could have just used that one.

I didn't draw this graph, myself. It actually comes from the original Kondratieff work. Here is the quotation from his paper:

The first phase is a twenty to thirty year period of steadily climbing prices, stable growth and rising productivity. It is capped by a spike in general prices. The surge of inflation is eventually broken by the second phase of the Kondratieff Wave: a sharp "primary recession". In the wake of the primary recession prices stabilize and the economy enters a "speculative blow-off" - the third phase of the Kondratieff Wave. The speculative blow-off lasts a decade-or-so and involves price disinflation, general euphoria, heightened consumption and investment activity, risky speculation, excessive debt accumulation and other such financial excesses. The bubble eventually pops, however, and the social mania is broken, usually with a sharp panic. A dramatic breakdown in sentiment and financial conditions hits society and a ten to twenty year period of general malaise and economic stagnation takes hold that is known as the "secondary depression".

And, here is the link:

http://www.spiritoftruth.org/Thesis/Intro/

Yes, I agree with that. The giant housing bubble was actually a localized hyper-inflation in the credit sector, though most people didn't complain because it caused inflation in something they owned (a house).

Hyperinflation to me is Weimar or Zimbabwe. Hyperinflation is a one-way street to oblivion, where 2 eggs cost a trillion zimbabwe dollars.

What we did in the US in real estate sector is we inflated the credibility of the market way beyond control. It was done with cheap credit. We actually have deflation in house prices, they are like a falling knife now.

If we had hyperinflation in US housing market, we would have stopped measuring houses in US dollars. We haven't, we still measure it using the dollar.

by creating unlimited credit to buy up the crappy mortgages from the banks, to slow down the deflation in housing. And that credit causes inflation in commodities.

I don't think this is totally true. Let me try to explain.

The Fed expanded the monetary base to buy up these assets. Monetary base does not equal credit. Monetary base can expand into more credit only if banks lend. At the time of the financial crisis, lending froze -- which is why it was called 'credit crunch'.

The banks are starting to lend again, but credit cannot expand at the same rate because we already have credit up to our eyeballs.

So this inflation that we see in commodities cannot be sustained because you don't have real wage inflation. Commodity prices have a cyclical nature to them because of supply vs. demand as well as influence from speculators trying to bet on exogenous events that might happen, but eventually don't happen (e.g., a war lead up will shoot oil prices).

The risk of deflation is ever present, because there's still a lot more debt on the banks' balance sheets that are marked to fantasy, not marked to market.

http://tinyurl.com/3uuvulg

What happens with an exponential function, in every case? The only really important graphs you need to pay attention to are the first 3.

Dunnross says: I didn't draw this graph, myself. It actually comes from the original Kondratieff work. Here is the quotation from his paper....

Dunnross - just so you know, that guy whose work you cited is likely insane. In particular, if you scroll toward the end of his "thesis" he notes how he got secret messages from Tom Brokaw, and perhaps from God himself. Moreover, on his blog he has said (in all seriousness) that he is convinced he is Jesus Christ.

In any event, just FYI

wthrfrk80 says

Now that that mortgage credit is being defaulted on, the Fed is desperately trying to save the banks at the expense of everyone else, by creating unlimited credit to buy up the crappy mortgages from the banks, to slow down the deflation in housing. And that credit causes inflation in commodities.

Well benovolence ruled the day. It kind of proves once again who prints and who don't. Actually go to the FDIC list see whos taking over what "failed financial deal". There you will see some interesting things. Mortgages and paper once again are no big deal. Assets are being swallerd. There you will see part of the "food chain". The part of the "food chain" That is owned by the larger er banks.

Robo signing still makes me hysterical with laughter. Banks are in deep shit. Case in point. The Supreme court case Chase Manhattan vs. Bugs Bunny and Bullwinkle. Bugs didn't show up. Bullwinkle was left to defend himself. Bullwinkle cited squirrel infestation and rabid coyotes invading his well marked areas. Chase Manhattan agreed and settled out of court. The childern all stared in awe at the power of the government. The government that owed the banks so fucking much. Bullwinkle stated to Chase Manhattan lawyers "look your going down MOFO". One Chase Manhattan lawyer looked at Bullwinkle saying quietly. Yeah I know like the Titanic. So they gave Bullwinkle a wad and told him to hold on summer is coming. Maybe the squirrels and coyotes will be gone by then. Bullwinkle always wondered why in the past. Why they didn't just print a wad for him. He thought it was a great idea. Duh shit Bullwinkle said after his win maybe this kind of shit has happened before. Bullwinkle recalled the Antelope riots in the 60's nah never happen he thought to himself.

Curious, Sylvester the cat showed up after the settlement. Sylvester had always been unable to understand abstracts having very little conceptualization. After snoozing on the edge of the roof of a 3 story house. Falling off and hitting his head on the sidewalk. Much less having a senseable direction. Wandered back out onto the road and got run over by a garbage truck.

Tommorow: The three little pigs er I mean Animal farm.

dunnross says

We have deflation in things we own (stocks & real estate) and inflation in things we need (food & gas).

Last I heard.. A roof over your head is still a need! And if you are renting someone still OWNS the place.. You aren't renting from magical gnomes.

Rents are increasing also, along with food & gas. Actually gas is less of a need than real estate. If you buy/rent within biking distance to work or take public transportation like in NYC/SF.

CaliOwner says

Last I heard.. A roof over your head is still a need! And if you are renting someone still OWNS the place..

Last I heard...equity of that OWNER is going RED while he is collecting rent and does not even realize it...Now try to invest that going down equity and see how much you can turn that lost equity to GREEN in 30 years. Fuzzy math.

dunnross says

We have deflation in things we own (stocks & real estate) and inflation in things we need (food & gas).

This site cracks me up. You write that stocks are down. 3-4 agree with you, one person "likes" this comment.

Stocks have almost doubled over the last 3 years. But they're deflating? Really? And we all agree with that statement?

The reason that the stock market has rebounded since 2008 is not for any authentic reasoning, it is because the government is taking on massive amounts of debt effectively acting to expand the money supply all by themselves. This deficit is obviously not sustainable and as soon as the government has to live within their means or has to pay it back we will see the stock market restore to reality. Stocks will drop after the government deficit is zero because they are propping the economy up by currently spending the next 10-15 year’s dollars today. The Gov. is stealing gains from our future economic activity to attempt to keep our money supply and asset prices at an unsustainable level (not to help us…. but to ensure the cover up of the failing of the big banks). I thought we lived in a capitalistic society where markets clear. But then I remember that Federal, State, and Local government make up about 46% of GDP. In the book "The Road to Serfdom" Hayek said that Germany was close to 54% before they teetered to oblivion in the 1920's. First we get a form of crony capitalism (much like we currently have). Next, the path follows as democratic socialism to socialism to communism to totalitarianism to fascism. Hayek does not say that the path to serfdom is not reversible. We just need to restore capitalism and get government out of the markets!

tatupu70 says

Stocks have almost doubled over the last 3 years. But they're deflating? Really? And we all agree with that statement?

Stocks are at the same place they were 12 years ago, while gold is up 6 times it was 12 years ago. In real terms, if you had invested in stocks 12 years ago, and sold now, your money would have bought only 50% food, 30% gas and 15% gold. That's deflation. Moreover, stocks are at the top range of it's deflationary cycle, and by the time this K-winter ends, I expect the Dow to fall far below the low reached in 2009.